Second Life's virtual money can become real-life cash
Monday, March 8, 2010
Dana Moore sells rain. He sells a lot of it, for about a buck per reusable storm.
"I don't know why people love buying rainstorms," he said, watching his product drizzle last week, "but they do seem to like them a lot."
The attraction isn't rain, per se, but Moore's rain, which can deluge swaths of land on command. The rain falls not in Bowie, where he lives with his wife of 37 years, but in the virtual world of Second Life, the Web portal where he also markets snow, clocks, University of Maryland basketball T-shirts, Duke basketball T-shirts (grudgingly), two-story Tudor-style homes, pinup posters from the 1930s and the sounds of barking dogs.
In the physical world, Moore, 62, writes software for a subsidiary of defense contractor Raytheon. In the virtual world, he is one of thousands of entrepreneurs selling products -- for genuine American dollars -- that add a remarkably profitable dose of reality to Second Life's fantasy world.
Newbies show up in Second Life without so much as 40 acres and a mule, so their avatars need hair, and fancy shoes for a concert or suits for business meetings, and a house, and art for the house, and maybe a waterfall for the living room -- virtual goods that cost real money.
Last year, as the physical economy withered, Second Life's economy blossomed, with user-to-user transactions topping $567 million in actual U.S. currency, a 65 percent jump over 2008. About 770,000 unique users made repeat visits to Second Life in December, and the users, known as residents, cashed out $55 million of their Second Life earnings last year, transferring that money to PayPal accounts.
The big purchases in Second Life are land and the material goods residents put on that land. It isn't real land, obviously, but digital space that looks like land. Users control the intellectual property rights to whatever they build, giving them economic incentive to create things. And create they do.
"The barriers to entry are really, really low for an enterprise to get started in Second Life," said Tom Boellstorff, an anthropologist with the University of California at Irvine who studies virtual worlds, in an interview at one of his Second Life residences -- a lovely modern space with a water view. "You don't need a factory. You don't have a lot of expenses."
Boellstorff, through his avatar, was sitting on a couch. To make his point, the professor arranged for a box to appear suddenly in his living room, not far from a reporter's virtual face. "You can make it hollow," he said, making the box hollow. "Or you can make it a circle," he said, making the box a circle. "You can't do that in the physical world. It's just not that easy. Here you can make anything." His voice came through a computer's speaker with the clarity of a land-line telephone call.
Second Life's economy looks remarkably like that of the physical world. At one end, where most users are, small-business owners such as Moore keep their physical-world day jobs but make a few hundred dollars a year selling niche products such as rain and T-shirts. But as Second World has grown, some users have built much bigger, full-time businesses: Stiletto Moody sells thousands of high-end shoes for about $8 a pair, and Curious Kitties is a Japanese maker of somewhat risqué clothing.
More than 50 businesses in the virtual world made more than $100,000 each last year.
Second Life's owner, Linden Lab, makes money by selling land plots and islands. An island runs about $1,000, a high barrier of entry for most Second Life users. But to open a strip mall, dance club or office tower, or to build a home, avatars need land. Some Second Life users have taken on Donald Trump-like personas, buying land from Second Life and then leasing plots to small-business owners or would-be homeowners, or flipping their properties as speculators.
As in physical reality, these land barons are few in number but generate a big chunk of the world's gross domestic product. The top 25 Second Life earners are mostly land barons, making a combined $12 million.
"The Second Life economy really starts with the idea that people want to socialize," said Robert Bloomfield, a Cornell University management professor who hosts a popular financial talk show in Second Life called Metanomics. "People need a place to do that. So the foundation of the economy is land." Sound familiar?
Ray Williams, who lives near Richmond, is a Second Life land baron. In 2006, on his lunch break as a computer technician at Circuit City, Williams stumbled on a CNN.com news item about an avatar named Anshe Chung, Second Life's first physical-world millionaire. Chung, whose real name is Ailin Graef, is a former schoolteacher who became known as the Rockefeller of Second Life by buying and selling land. That night, Williams logged on to Second Life for the first time. Two and a half years ago, after he was laid off by Circuit City, Williams made Second Life his full-time career.
The other day, standing on the beach of a private island he shares with his real-world girlfriend, Williams -- through his avatar, named Ray Burdeyna -- told a story that sounded very much like Trump's: He started off small, buying land plots here and there. He saved enough money to buy his first island. Then he started leasing out spaces. That led to more island purchases, and now he owns 100 islands. Each of his holdings generates about $85 a week in rent. He pays for his health insurance and runs his business from a room in his Chesterfield, Va., apartment -- two computers tuned in to Second Life, a third to his music.
"I make a lot more money doing this than working at Circuit City, that's for sure," said Burdeyna, strolling on his island near a yacht his girlfriend bought him for Christmas. He looked out of place on his beach; after all, he was wearing a shirt and tie. Burdeyna said he put it on for his interview with The Washington Post, and then he invited one of his tenants, who runs a virtual club from his physical home in the Netherlands, to drop by.
Foxx Bode proclaimed Burdeyna a great landlord. "He's a lot cheaper than other landlords," said Bode, who declined to give his real name. "I've got no problems with him."
Every week, Williams's tenants drop by his office, where signs on the wall show how much each resident owes and the date the money is due. Tenants click on boxes to pay their bills.
Nobody in Second Life pays for anything with actual currency. They pay in Linden dollars, which, like real-world currency, is traded on an exchange. Linden Lab, like the Federal Reserve, controls the exchange and money supply to maintain a steady value for Linden dollars. That value has historically hovered around 250 Linden dollars for every U.S. dollar.
People entering virtual worlds for the first time are often surprised to learn that virtual dollars have actual value. They should not be surprised, economists say, because whether the world is physical or electronic, all value is virtual.
"I think it's fair to say that the car I am in or the clothes people wear, a good chunk of their value is virtual," said Ed Castronova, an Indiana University economist who studies and creates virtual worlds. "A coat is not entirely about keeping the cold off -- there's a look, a signal, a message, and that's virtual. There's always been this virtual part of the economy, but by stripping out the physical part, you go, 'Oh my gosh, a lot of our motivations are intangible.' "
To that end, one of the more popular posts last week on the virtual worlds blog Terra Nova was by Castronova, linking to a story in the satirical newspaper the Onion that opened: "The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct."
In Second Life, that money buys weather.